Academic-industry partnerships are popping up all over the place these days to fund early stage programs as part of '”open innovation” initiatives and "external sourcing" of new pipeline projects. Here’s a non-exhaustive list of a few such deals this year alone:

Sanofi announced a deal with the Bio-X program to fund five programs a year at Stanford University (April 2011)

UCB and Harvard are collaborating on programs in neurology and immunology, and are already funding their first program (Feb 2011)

The big question I always get about these: are these a threat to the early stage venture capital model?

Perhaps I’m biased to say this, but I don’t think they are at all. Here are a few reasons:

1. Early stage VC isn’t about market share. No one will ever “buy up” all the exciting early stage concepts coming out of top tier academic labs. The NIH funds some $50B worth of research alone, most of which gets done in academia. There’s an enormous amount of exciting substrate for startup formation. Most of these deals don’t even scratch the surface on the supply side: let’s take the Sanofi deal announced with Stanford last month that “supports, organizes, and facilitates interdisciplinary, collaborative and innovative research projects in the early phases of development”. That sounds significant, and is. But importantly, its not a monopoly on access to the Bio-X program or Stanford. Its only five programs per year, while Stanford’s Bio-X program has 450 affiliated faculty from 50 departments and its Interdisciplinary Initiatives Program seed program has funded 113 projects involving hundreds of faculty. So put in context, hard to see this as fundamentally restricting access away from novel discoveries.

2.More industrial engagement in academia will help build a translational mindset. The beneficial presence of having seasoned Pharma R&D managers engaging with academics in these alliances will undoubtedly help foster an appreciation for challenges of drug development, the key questions to be asking beyond the “Science or Nature” paper questions, the importance of general reproducibility, what a lead optimization campaign really looks like, the attributes of a development candidate, etc… This sharing of knowledge can only be helpful.

3. There’s an academic funding gap and its great to see Pharma stepping in to fill it. In addition to providing valuable support to specific labs and programs, these Pharma alliances support the academic institution via overheads – which support core translational facilities at academic institutions that are of benefit to the whole ecosystem. Many top tier academics have Indirect Cost Reimbursement rates north of 60%; not sure how Pharma negotiated, but I’d be surprised if universities didn’t extract their pound of flesh here. Academic funding is only likely to be tighter over time with the budget challenges on the US government: will the 80% grant failure rate for federal research funding move to 95+%? If so, it’ll be great to have “Daddy” Pfizer-Warbucks and his Uncles around to help support these labs.

4. There’s also an early stage venture funding gap. With less and less venture firms playing in the early stage biomedical arena, its good to see Pharma helping to move promising projects forward, both for society and for future opportunities. I’m sure many of these won’t be licensed in by their funding partner for a variety of non-program reasons (e.g., strategic portfolio rationalizations, shifting therapeutic area priorities), and VCs in the future will be able to jump in and fund them. How many programs did J&J or Pfizer ever get from their Scripps collaborations in the 1990s?

Several comments from the protagonists of these deals make it seem like it’s attempting to replace or offer an alternative to venture investing.

- GSK’s Patrick Vallance says their approach with academic superstars will “provide an alternative to the often arduous task of developing a drug via a biotech spin-out. Biotech entrepreneurs spend much of their time raising funding for their research, but this has become increasingly difficult in the last few years.” It may be true that its tough to raise money for startups today and this could be a good alternative, but ceding downstream rights to GSK in exchange for funding might not solve all their problems. Many of the pharma incubators in recent years have attempted to do this but have largely strugggled.

- Some of the lessons from early stage VC are being used here. As Pfizer’s Anthony Coyle says “It’s almost like VC-based funding… “ where the deals have small upfronts and “and then projects are funded as they are successful. If there’s no success or a project didn’t meet the appropriate milestone, then there’s no additional funding.” Couldn’t agree more with Tony that milestone-driven funding is a good thing.

Lastly, its worth noting that once an academic project from one of these collaborations enters a Big Pharma R&D organization, it will be one of literally hundreds of projects in the pipeline. Will academics be able to influence and shape those projects the same way they can in biotech? Will these newly minted programs get the mindshare of seasoned, creative R&D managers to push them forward? Will those programs succeed against the tyranny of big bureaucracy better than others? I'm sure in some cases the answers will be positive on these questions, but academic labs should certainly consider them when they strike these deals.

At the end of the day, I think there’s a (mostly) healthy vetting process conducted by early stage VCs in evaluating, co-creating, funding, and helping govern new startups out of academic labs. When done well, Pharma benefits from this, as does academia. I don’t see these broader partnerships as threatening or significantly reshaping this important role of VC and their startups in the process of translating discoveries into clinical innovations.